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FDI in Real Estate: Evolution of Smart Cities

Any country when starts its journey from underdeveloped economy towards the developed one, it witnesses many changes including rapid urbanization. India too is going through similar change where the proportion of urban population is rising rapidly in comparison to the rural population.

However, the influx of migration from rural to urban areas is found to be much faster than the planned development of infrastructure and amenities in urban areas. The lack of synergy between urban infrastructure development and rural-urban migration causes unplanned urbanization. In such kind of urbanization, civic amenities are at worst, where a big chunk of population is devoid of basic facilities such as sanitation, hygiene, health, clean water, electricity etc. Slums often form a distinguishing feature of such urban centers.

Except for a few centers, this is a characteristic feature of every Indian city prompting the Finance Minister to announce development of smart cities in Indian with the help of Foreign Direct Investment (FDI). In Budget speech, Finance Minister announced INR 7060 crore allocation towards the government's program for creating 100 smart city projects.

He also relaxed the norms for FDI in real estate sector to allure foreign companies to share their expertise in developing such cities. Already foreign nations like Japan, Germany and Singapore had welcomed the announcement and shown interest in the development of smart cities.

The cities with ongoing or proposed smart cities include Kochi in Kerala, Ahmadabad in Gujarat, Aurangabad in Maharashtra, Manesar in Delhi NCR, Khushkera in Rajasthan, Krishnapatnam in Andhra Pradesh, Ponneri in Tamil Nadu and Tumkur in Karnataka. Many of these cities will include special investment regions or special economic zones with modified regulations and tax structures to make it attractive for foreign investment. This is essential because much of the funding for these projects will have to come from private developers and from abroad.

The smart cities will not just cope with the challenges of urban living, but will also be instrumental in attracting investment. A 'smart city' is an urban region that is highly advanced in terms of overall infrastructure, sustainable real estate, communications and market viability. It is a city where information technology is the principal infrastructure and the basis for providing essential services to residents.

There are many technological platforms involved, including but not limited to automated sensor networks and data centers. In a smart city, economic development and activity is sustainable and rationally incremental by virtue of being based on success-oriented market drivers such as supply and demand. They benefit everybody, including citizens, businesses, the government and the environment.

During the upcoming visit of Prime Minister Narendra Modi to Japan from August 31 to September 3, India is likely to sign a bilateral development for the development of smart cities. On August 16, 2014, External affairs minister Sushma Swaraj concluded a hectic 24-hour to Singapore to get its expertise in skills development and rejuvenation of Indian cities which would include 'smart cities'.

Countries like South Korea, UAE and China began to invest heavily into their research and formation. Today, a number of excellent precedents exist that India can emulate, such as those in Vienna, Aarhus, Amsterdam, Cairo, Lyon, Málaga, Malta, the Songdo International Business District near Seoul, Verona etc.

Smart Cities in India will have the potential to create a new competitive landscape for the subcontinent that will be much more attractive for foreign direct investments by global multinationals.

The concept is not without challenges, especially in India. For instance, the success of such a city depends on residents, entrepreneurs and visitors becoming actively involved in energy saving and implementation of new technologies. Also such cities can potentially take anything between 20 and 30 years to build.